Looking after the pennies.
'Using your kids tax efficiently' - what a horrible, cold piece of terminology. Thing is, it's not as pompous and 'ministerial' as it sounds. You see, the Treasury currently don't tax childrens' savings so saving money in a child's name is tax free and often attracts a higher rate of interest.
In a nutshell, you're free to have one account for your child to put their pocket money in, and another for any larger amounts. Kids make £100 interest per year before Mr. Taxman takes a share.
Now, before you get over-excited, don't just assume you can make fortunes in your kid's name. If a child generates more than £100 interest in one year from money specifically given by each parent, this income is taxed at that parents' tax rate.
For example, in 'hard numbers' terms, you could deposit up to £1,850 in the 5.7% top paying children's account without incurring tax as that would generate around £105 in interest.
In other words, this doesn't mean £1,850 every year; it's the interest generated from all cash given in this and previous years. And, just for info', these rules only apply to parents, not grandparents, aunties, uncles or friends. They're free to give your children as much as they like and, providing it's a genuine gift, it counts as the child's money without a £100 ceiling.
In the event of the donor dying within seven years of making a donation, the spectre of inheritance tax looms. Oh, and just in case you're already plotting the ruse of: "If I gave my brother's kids £10,000 and he gave mine the same...", well, 10/10 for noddle, but no cigar. If the Inland Revenue spots you, you're in trouble.
But whose cash is it to splash?
All money in your child's name is your child's cash. If the prospect of depositing £1,000 in their name spawns visions of your beloved little ones blowing it all on video games and enough chocolate to start a factory, worry not. Many accounts will allow YOU to stay in control of the purse strings.
At present, kids need to be at least seven before they can open an account for themselves - however, this differs so always check the specifics. Under sevens require a parent, guardian or grandparent to set up an account and act as signatory.
'Signatory' can also be selected for older children and if in place, until they're sixteen the signatory can still manage and withdraw the cash without the child's approval. Small print accompanying accounts carry terms and conditions stating withdrawn money must be used "for the benefit of the child," but this is open to interpretation of course.
Before you make any kind of investment, we strongly recommend that you seek the advice of an Independent Financial Advisor and always read the small print on any account.
